Do monetary condition news at the zero lower bound influence households’ expectations and readiness to spend?

Abstract

We investigate how households update their interest rate and inflation expectations upon hearing monetary condition news, and to what extent this changes their readiness to spend. Using data from the Michigan Survey of Consumers from December 2008 to December 2015, we find (1) the likelihood of higher expected interest rates significantly increases upon hearing news of tighter monetary condition; (2) monetary condition news is irrelevant for both short- and medium-run inflation expectations; (3) the main information content of this perceived news is most likely from forward guidance and professional forecasts; and (4) households update their readiness to spend on houses, cars and durable goods upon perceiving monetary condition news. Our evidence points towards interest rate expectations as the most likely mediator through which monetary condition news drives households’ readiness to spend.